Preparing an international trade contract

The start-up of export or import operation requires the consent of the two parties (buyer and seller). This agreement takes shape generally by means of a sale contract, which aims at dividing the expenses and risks between the seller and the buyer. The drafting of this contract is of prime importance, for, it facilitates the trade and exchange and especially avoids disputes. The international sale contract is governed by different rules having the objective of harmonising and facilitating international trade and exchange.

Vienna convention | Incoterms | Contract

Vienna convention

The Vienna Convention, developed under the aegis of United Nations, regulates international trade and exchange of merchandise. Signed in April 1980, it counts today 87 signatory countries. It is applied exclusively in the case of problems linked with formulation of a contract of sale and regulates the duties and obligations of contracting parties. Taking into account the problems posed by the choice of duty applicable, the said convention allows the choice of a neutral right. The application of Vienna convention depends entirely on the willingness of the two parties. The companies can either exclude it totally or apply it partially. As a matter of fact, the companies desiring to develop an international activity; must take cognizance of the legal system in the target country and the Vienna Convention.

Incoterms

The Incoterms are trade acronyms which regulate the problems relating to international logistics and to the transfer of property rights in merchandise. They allow distribution of expenses and risks in the onward journey of the goods from the seller to the buyer. The Incoterm constitute today the basis of the rules of international trade.

Contract

In order to carry out the contract, it is necessary that the two parties are in absolute agreement. The agreemement between the contracting parties depends on the offer price, general condition of sale and acceptance.

Offer price and pro forma invoice

The commercial offer is the basis of sale contract.It has to be firm, clear and without any ambiguity. An offer price is based on a written document and must be drafted in a language perfectly understood by the client.

The pro-forma invoice is the document which gives shape to the trading offer. It it considered as a rate schedule which determines the general outline of the sale. The pro-forma invoice includes all the elements found in a trade invoice and affords to the buyer to take cognizance of specifications relating to the offer. Finally, if everything is normal, the contract must define legal relationship between the two parties, and that is the aim of the general conditions of sale.

Content of the pro-forma invoice
Parties to the contract	Write the exact references of contracting parties along with, if possible, the name of respective representatives of the two companies.
The aim	To prepare a detailed description of the product or service, with all the technical aspects and the details of packing (volume, weight, and packing)
Transport Modalities	To determine the Incoterm, transport mode and the precised period required for delivery
Price	The price must be detailed (unit price, etc.), final and binding in order to avoid any misunderstanding. The buyer and the seller must define at this point of time the mode and period of settlement of bills.

General Conditions of Sale

The general conditions of sale allow the companies to define the legal frame work of their trade relations. The general conditions of sale are specific to each exporter. They define the duties of the buyer while allowing him to defend is own interests.

The general conditions must be written down in a clear manner and free from equivocation. They are written down either in the language of the country of the buyer, or in English. The exporter must go to the essential and give emphasis on the most important points such as price, conditions of payment, period of delivery and modalities connected with settlement of legal disputes.

The buyer must take cognizance of general conditions of sale before signing the contract. Otherwise, they would bo considered legally ineffective.
In fine, one must know that some countries lay down general conditions of purchase. As a geneal rule, they oppose the conditions of the seller. In that case, the two parties must negociate and analyse the general conditions from legal point of view governing the contract. Every buyer who would not have denounce the general conditions of sale is supposed to have accepted them and would only have the general conditions of purchase for being able to oppose them.

Acceptance

Acceptance of an offer constitutes an agreement with the client and allows finalisation of the sale contract. The contract assumes concrete shape only at the time when the offer is followed by its acceptance. So long as it has not been accepted, the offer can be withdrawn. An acceptance must be transmitted in a written form so that the seller obtains a certain guarantee and a proof in case of legal disputes. In that precise case, acceptance takes the form of a trade bill or a trade contract.
Oral acceptance is not advised due to the fact that there is no proof available unless the contract is simple and is executed by persons who are loyal and of good faith. In spite, of any thing, written confirmation is always recommended. One has to pay attention in the case of legal dispute to the acceptance by Email or fax which does not constitute sufficient proof. Companies also have recourse to typical contracts for formalising the agreement between two parties. Typical contracts are practical means but, the only inconvenience is that they cannot be negociated. The surest means is to prepare tailor-made contracts for each client.

Contractual Clauses

CLAUSES
Parties to the contract	Identifying parties to the contract (buyer/seller) : Name of the companies, their Head Offices addresses detailed addresses and the name of respective representatives.
Nature of the contract	Defining aim of the contract (product or service) Describing technical aspects, quantity, volume, weight and eventually mode of packing, as the buyer can communicate his requirements.
Prices and modes of payment	Specifying price in your currency or foreign exchange (risk of exchange rate being included) Price is accompanied by Incoterm determining distribution of expenses on transport, custom duty, insurance and the time of transfer of property. The price of merchandise will be defined (unit price and total price). Provide for a code of settlement which gives a maximum security to the seller. Down payment of advances guaranteeing the order. In case of documentary credit, the seller notes the opening demand In fine, if law permits, a cause for reservation of propriety can be inserted into the contract.
Methods of transport	Specifying the mode of transport consistant with nature of merchandise, destination and security. Depending on the Incoterm, respective obligations of the contracting parties are stated.
Methods of delivery	Specifying date, place of loading and delivery. Defining details according to the date of contract coming into force : respect for delivery period is one of the major obligations of the seller. One must provide and impose in advance penulties for delay.
Force majeure	Indicating the force majeure for unforeseeable events. In principle, one should avoid accepting the case of force majeure resorted to by the seller to the extent to which he does not impose it.
Guarantees	Defining the obligations of the two parties in regard to guarantee. Eg : guarantee of restoring advance for the seller.
Jurisdiction in case of legal dispute	Specifying the law applicable to the settlement of legal disputes.
Language	Specifying language of the contract, which must be mastered by both the parties. However, attention has to be paid to the problems of translations.